The Insider’s Guide to Accounts Payable

If you or your organization are thinking about offering BillPay or Accounts Payable to your B2B customers, this guide is for you.

What is "Accounts Payable"?

Imagine you're running a local bakery with five busy locations. Aside from payroll and rent, you need to work with many vendors to purchase ingredients and supplies, use a marketing agency, pay a cleaning service, purchase parts to fix your equipment, and much more. All of this on top of keeping your business afloat!

While some of these purchases are paid on the spot with cash, check, or a business credit card, for most purchases you will receive an invoice that needs to be paid manually at a later date. Accounts Payable is the official term for services and goods a business has already received but has yet to pay.

Each invoice will have its own amount, due date, and payment terms that might change from month to month. Some vendors may only accept a check, while others expect your customers to pay via bank transfer.

How do you keep track of all of these bills and make sure their vendors get paid? Many small business owners track, manage, and pay these invoices using spreadsheets and the ACH/Wire-out functionality provided by their bank or checks manually written by their accountants. Growing businesses may use AP Automation software designed to automate this process.

All-in-all, the steps within an Accounts Payable process include:

  • Receiving an invoice

  • Verifying the accuracy of an invoice

  • Getting approval for payment

  • Making the payment

  • Recording & reconciling the payment

When paying invoices manually, business owners have no way of knowing if the vendor's routing & account numbers were entered correctly, if the vendor has received a payment, or if the vendor knows which invoice was paid. The payment just shows up in the vendor's bank account!

Why offer accounts payable to your customers?

Businesses want one platform to manage and run everything related to their business. Opting in for a one-stop-shop solution allows them to reduce the time they spend vetting new tools, consolidate their costs, and keep their finger on the pulse of their business (cashflow) at all times. Offering accounts payable allows a software company to position themselves as a one-stop-shop and offer strategic financial services to both payers and vendors.We are at the very beginning of the era of one-stop-shops but are already seeing a few companies embracing this model including BlueVine,, and Plastiq. When you provide your customers with a one-stop-shop experience to get paid, make payments, and manage their cash flow, you strategically position yourself to monetize every leg of the transaction:

  • Get paid: Payment Processing Fees, Invoice Factoring

  • Make Payments: Extended Payment Terms, BNPL payment methods, Invoice Consolidation, Pay by Credit Card

  • Cash Flow Management: Business Loans, Working Capital

Your product experience becomes stickier and also gives you space to increase your SaaS fees on top of the revenue generated from facilitating the payment. Customers are less likely to churn if you are helping them run every part of their business. For some companies, monetizing payments can end up being more lucrative than a SaaS fee.

Managing accounts payable helps your customer maintain positive relationships with their vendors. When payments are made on time, their vendors are more likely to continue doing business with the company and may even offer better terms, such as discounts for early payment. Your customers can also better negotiate with vendors, as they will have a better understanding of the terms and conditions of payments, and can work with their vendors to find mutually beneficial solutions.

How is Accounts Payable monetized?

Many folks we talk to think that offering Accounts Payable is a loss leader. After all, it's hard to monetize money leaving your platform!

However, a unique opportunity exists in Accounts Payable because another party, the vendor, is now involved. With this in mind, there are many opportunities & avenues to drive new lines of revenue for your business with Accounts Payable:

Charging a SaaS fee

The first and most obvious path to monetization is to charge your customers a SaaS fee to use your accounts payable features. Some companies will include these features in their highest tier offering and use it as a carrot to get customers to upgrade their accounts. One thing you'll want to be mindful of is ensuring the fee you're charging covers your costs for moving money as your customer's usage grows while still being enticing enough that they don't churn for a cheaper solution.

Offer Premium Payments

Most SMBs hate parting with their money sooner than they absolutely need to. This is usually because they want to ensure their business stays cash-flow positive. There are a variety of premium payment products you can provide to help your customers stay cash-flow positive and generate revenue for you including:

  • Pay bills with credit card: Allow a customer to pay a bill or invoice with their credit card even when the vendor doesn't accept card payments

  • Buy Now Pay Later: Gives your customer the ability to chop up one large payment into smaller, more manageable payments.

  • Invoice Consolidation: Consolidate all of a customer's invoices into one monthly invoice that makes it easier to understand and pay expenses. Your customers only need to focus on making one monthly payment. Their vendors get paid on their original schedules.

  • Extended Payment Terms: Offer your customers extended payment terms (ex. Offer net 60 terms on an invoice that originally only offered net 30 terms) for a single invoice while ensuring their vendor is paid on time.

Monetize Vendor Payments

Your customers' vendors prefer to be paid as soon as they can. This is usually because they have their own cashflow obligations that need to be fulfilled. There are many ways to provide your customer's vendors the ability to get paid faster including:

  • Invoice Factoring

    Invoice Factoring involves buying the invoice from the vendor for a price that is less than the invoice amount. In this exchange, the vendor gets paid immediately and you can collect the full invoice amount from your customer when they pay the invoice

  • Instant Transfer:

    Instant Transfer products allow vendors to bypass the 3-5 days it takes for an ACH payment to hit their account and get paid immediately in exchange for a small percentage of the total transaction. Instant Transfers are common in payment apps like Venmo or Cash App and have been making their way to micro and SMB business platforms as well.

    Most Instant Transfer service providers charge between 1-2% per instant transfer.


  • Working Capital:

    Working capital is commonly referred to as a Merchant Cash Advance. Working Capital allows a vendor to receive a lump sum of money upfront while agreeing to pay a percentage of every future payment they receive until the advance (and associated capital fees) are paid back. Stripe Working Capital

  • Virtual Cards:

    Providing vendors funds via a virtual card is a relatively new product experience within the market. With a virtual card, vendors can access and spend the funds owed to them immediately by charging it elsewhere for their own expenses.

    For example, if your customer is a construction company that needs to pay a subcontractor $1000, they could give that subcontractor a virtual card with $1000 on it. The subcontractor can immediately use this money to buy new tools on Home Depot's website.

    Virtual cards generate interchange revenue for you whenever the vendor uses that card to pay for something. These fees are made up of both fixed and variable amounts which vary based on the size of the transaction.Your customer and their vendor do not pay this fee. Instead, the fee is paid by the merchant that is processing the card transaction.

    In the example given above, Home Depot would pay you the interchange fee.

Acquire new customers

If your customers' vendors are also your potential customers, accounts payable can be a free customer acquisition channel. When vendors sign up for an account, they're able to receive money instantly.

For example, let's say you offer bank accounts to professionals in the wedding industry. When a wedding planner pays a wedding florist using your product, you could offer the florist immediate access to those funds (via debit card) if they open up an account with you.

When the payer and vendor both have an account on your platform, money movement between them can be as simple as a book transfer. Book transfers are usually instant and free.

Building an Accounts Payable service

When you offer your customer Accounts Payable, you are taking on the responsibility to ensure their invoices are paid on time. A late payment could result in late fees, paused services, or even a complete severing of a vendor relationship.

Managing customers' money out is a high stakes business, so you have to treat Accounts Payable as a service not a feature. As your customers grow, so do the number of invoices they will receive and need to pay. To ensure they will continue to pay those invoices using your platform, your customers must have deep trust in your ability to pay their vendors on time.

As a quick reminder, your customers go through the following series of steps to ensure their bills and invoices are paid on time:

  1. Receiving an invoice

  2. Verifying the invoice is accurate

  3. Getting approval for payment

  4. Making the payment

  5. Recording & Reconciling the payment

Your AP experience will need to address each of these steps to ensure your customers invoices & bills are paid on time. This guide is meant to serve as a high level overview on what you need to build out your own Accounts Payable experience.

This experience consists of eight different components that must be tightly integrated together:

The Invoice Inbox

First, you'll want to give your customers one place to aggregate all of their open invoices. We've generally seen this manifest as an “invoice inbox” where customers can upload their open invoices. The best invoice inboxes offer the customer a variety of ways to upload their invoices including: drag & drop, SMS, whatsapp and email-forwarding

For creating the email inbox, you can use a service like:

For example, with Sendgrid, you would set up an Inbound Parse Webhook that would route email to to this webhook. The webhook would call an endpoint in your system that would extract the invoice details (usually in an attachment) and figure out which customer this invoice belongs to by splitting the email address on the “+” character. You can also let your more tech savvy customers bring their own email domain as well.After you choose your email vendor, you will need to account for:

  • Document storage - to store and manage your customers' open invoices. Usually done with S3, GCS, R2, or other cloud storage providers.

  • Creating a system of record - to ensure you can keep track of all open invoices, invoices scheduled to be paid, paid invoices, and invoices where the payments were canceled.

  • Creating access controls to see who can create/read/edit/approve the invoices*

*If you serve solopreneurs or microbusinesses, this is usually not required.

Invoice Processing

After you build the invoice inbox, the next thing you'll need to figure out is a way to read the invoice & copy all of the important payment details for your customer to verify. You need a way to take a picture of an invoice and get structured, machine readable data back from it. The easiest way to do this is to use an off-the-shelf OCR (optical character recognition) vendor like:

If you're already using a cloud platform, the major players also provide their own OCR services:

You will want to scan the invoices for the following data (if available):

  • Vendor Name

  • Vendor Email Address

  • Invoice Date

  • Invoice Amount

  • Invoice Line Item

  • Invoice Terms

  • Preferred Payment method

Tee up whatever data you find for your customer to ensure accuracy and add any details that may not be on the invoice. OCR needs to be done in near-real-time, most customers do not want to wait for a human powered API!

Approval Workflows

You will need to invest in building out an approvals workflow engine that your customers can use to set up their invoice approval workflows. This can be tricky and take some engineering effort, but gives you an opportunity to add more users from your customer's company to your platform.

For example, let's say your primary user is someone on an accounting team. If an invoice comes in for tools that the sales team is using, then the VP of Sales would need to log into your product to approve the payment of that invoice. This can be a strategic avenue to add more seats and increase subscription value of each customer.

These workflow engines generally range in sophistication. Setting up a no-code, if-then builder functionality that can read the information you scan from your OCR service is the easiest way to do this.

This functionality needs to be easy to use, edit, and understand for even the most non-technical users. Having a powerful workflow engine doesn't matter if no one uses it.


Most invoice payments need to be scheduled and not paid immediately. You will need to set up scheduling functionality to allow your customers to tee up invoices to be paid automatically on a certain date after they have been approved.

Most folks tend to create a calendar widget that allows their users to select important dates including:

  • The deduction date: The date you will deduct the funds from their bank account

  • The due date: The date that their invoice or bill payment is due

Melio Calendar Widget

These calendar widgets also need to account for bank holidays and the time needed to ensure a bill or invoice is paid on time.You will also need to make sure you have answers for the following questions:

  • How do you communicate to your user if there's an error that can't be resolved without user intervention?

  • How do you communicate to users to schedule based on a due date and not based on a send date?

  • Are users allowed to schedule payments that they cannot afford? If not, you need to verify the balance at arbitrary dates in the future.

  • How do you deal with bank holidays and cutoffs? Especially if the payment is scheduled for a due date that lands on a holiday.

After you've created your calendar widget, you will need to create a reliable scheduled job runner that:

  • Ensures payments and transactions are done exactly once

  • Retries failed payments once the failure has been resolved

  • Supports multi-step transactions (ex. ACH to FBO to Check disbursement)

Accounting Integrations

If your current product offering already has integrations with accounting platforms, you will need to update your integration to push records of these payments to the general ledger. If you do not offer an accounting integration today, you may want to consider using a unified accounting API vendor like Rutter to offer the ability to write back records of every transaction.

Every billing activity generates a set of journal entries. A journal entry is a record of a transaction. Each journal entry consists of a debit and a credit account. Most invoices in an Accounts Payable flow would generate two journal entries. When the invoice is received, an entry would be created that debit Expenses and credit AccountsPayable. When the invoice is paid, another entry would debit AccountsPayable and credit Cash.


As you start facilitating payments between payers and vendors, you will want to make sure you are keeping track of the transactions to ensure money goes where it needs to with a clear audit trail. When offering an accounts payable service, there are usually two transactions happening per invoice payment. The first transaction is from the payer to you and the second transaction is from you to the vendor. You want to ensure that you are properly accounting for both of these legs. To keep track of this, you will want to build a ledger system that is updated whenever a bill or invoice is paid.

Here are a few examples of Ledger as a Service products available in the market today:

Vendor Experience

Up until now, everything we have discussed is what we at Mercoa would consider to be "table stakes" for an Accounts Payable solution. The experience above layered with your own payment rails lets you ensure your customers' bills are paid on time. You may eat some cost on facilitating the payments out via ACH but that can be recovered by charging your customers a premium SaaS fee for use of this service. You could even start offering premium financial services to your customers like extended invoice terms, Pay by Card, and “Buy Now Pay Later” payment options.

However, if you want to really up the ante, and provide a truly kickass Accounts Payable solution to your customers, there's one more component you will want to build: A vendor experience.

Why think about vendors?

A vendor experience helps your customers pay with confidence. Offering a vendor experience saves your customers the hassle of having to punch in routing & account numbers or remember obscure details about their vendors. Instead, vendors can be shown a variety of options to receive their payment and provide the payment details themselves.

Offering a vendor experience also pays dividends in the form of:

  • Vendor Directory Once a vendor provides their preferred payment details, they can be added to a vendor directory that your other customers can see if they ever need to make a payment to this vendor. With each new vendor your customer pays, your vendor network grows, increasing the value of your Accounts Payable solution.

  • New Distribution channel A vendor experience allows you to open up a new distribution channel for your core product. Some folks even offer free, fast payments to vendors if the vendor signs up for their product.

  • Monetization Once a vendor is fully onboarded, you can offer them unique financial services & payment methods that help them get paid faster.

Building a Vendor Experience

A vendor experience is usually a combination of the following subsystems:

  • Email Notification System

  • Vendor Portal

  • Payment Disbursement System

  • PDF Generator

Email Notification System:

Your email notification system needs to notify vendors when a payer schedules the vendor's payment. The notification email should include the following information:

  • Payer Name

  • Payer Email Address

  • Payer Headshot & Logo (if available)

  • A tokenized link inviting them to a vendor portal (more on this below).

This system also needs to send follow-up emails to the vendor to remind them to add their payment details. Any time a vendor responds to this email, the response should be routed back to the payer's email address.

Melio Vendor Email Notification

Vendor Portal:

A vendor portal is a single, branded space for vendors to choose how they want to receive their payment and provide corresponding payment information. This portal is where you position your premium payment offerings as options for the vendor to receive funds immediately.'s vendor portal

Payment Disbursement System

Once you've set up a vendor portal, you will need to integrate it with a payment disbursement system. A payment disbursement system allows your vendors to choose their preferred method of receiving their payment. There are two ways to set up this disbursement system:

  1. Work with a Bank or Banking-as-a-Service platform: You'll need to set up an FBO (For Benefit Of) account with them. This approach lets you move money on behalf of your customers but requires you to take responsibility to build the infrastructure for risk & fraud checks to ensure you're not breaking anti-money laundering (AML) laws. Spinning up an FBO account generally takes 6-10 weeks. After you've created the FBO account, you will need to build support & functionality for each disbursement method (ACH, Check, RTP, Instant Transfer) as a separate product line. The FBO approach works best for companies who have reached some sort of scale and have a large audience to roll out AP features to.

  2. Partner with a money movement service: Companies like Dwolla or Moov provide an abstracted layer over their pre-built banking relationships offering you the ability to start moving money on behalf of your customers almost immediately. These services generally have a few pre-built disbursement options already baked into their product such as virtual cards or ACH. If you already have pre-existing payment rails already built out, you can use them alongside these services. One thing to note with these partners is that they do not support check disbursements today. Check disbursements can be tricky. Tools like Lob or allow you to send checks but require you to provide a validated bank account first. This generally means your payers funds will likely end up on your books for a brief period of time before they are paid out via check.

PDF generator

After a vendor provides their preferred disbursement method & payment details, you will need to generate a PDF receipt that they can download for their records. This receipt should have information referring to the invoice being paid, the disbursement they've chosen, the date they will receive the payment and the amount they're receiving. This PDF should be available to download from the vendor portal AND should be emailed to the vendor.

This vendor experience needs to be rolled in house. When building out this experience, you will want to be mindful of how you build trust within this product experience. The more trust you can bake into the experience, the higher your chances of a vendor selecting a premium disbursement method (like Instant Transfer) and driving more payments revenue.

Building Accounts Payable can be a time-consuming process but the ROI that comes with sitting between your customers and their vendors is worth it. Your team will need to continue optimizing and iterating on your AP experience to ensure you can fully realize the opportunity.

About Mercoa

What if you could do all of this 👆👆👆👆👆👆👆👆 with a single API? This is what we do at Mercoa. If you're building in this space, let's talk.